Understanding Chinese Bond Yields and their Role in Monetary Policy

September 1, 2011

Preview Citation

Format: Chicago

Nathan Porter, and Nuno Cassola. Understanding Chinese Bond Yields and their Role in Monetary Policy, (USA: International Monetary Fund, 2011) accessed November 12, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

China's financial prices are informative enough for the PBC to introduce a monetary policy framework centered around interest rates. While bond yields are not fully efficient?reflecting regulation, liquidity, and segmentation?we find they contain considerable information about the state of the economy as well as evidence of an emerging transmission channel: changes in PBC rates influence the structure of Treasury, financial, and corporate bond yield curves, which are then associated with changes in growth and inflation. Coporate spreads are also a leading indicator of growth and inflation. While further liberalization will strengthen both efficiency and transmission, several necessary elements to move towards indirect monetary policy are already in place.

Subject: Arbitrage, Bonds, Commodities, Financial institutions, Financial markets, Financial services, Inflation, Prices, Securities markets, Yield curve

Keywords: Affine yield curve model, Arbitrage, Arbitrage free, Banks bond yield curve, Bond yield yield curve, Bond Yields, Bonds, China, Europe, Inflation, Market rate, Monetary policy, Money market, No-arbitrage factor, PBC bills market, PBC paper market rate, Securities markets, Term Structure of Interest Rates, Treasury Bond market, Treasury bond yield curves, WP, Yield curve, Yield curve factor

Publication Details

Pages:

42
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2011/225
Stock No:

WPIEA2011225
ISBN:

9781463904937
ISSN:

1018-5941

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